Tip: Leverage All Your Tax Deductions and Credits

Tip of the Month

Tip: Leverage All Your Tax Deductions and Credits

This is the time of year when you gather your business records, personal receipts and notes before discussing what you might owe Uncle Sam with your professional tax consultant. It seems as if the tax code gets lengthier and more complex every year, and this year is no different. It’s easy to overlook an eligible deduction; so before you gather your data, take a moment to consider these often-overlooked deductions and tax breaks:

Business-Related Deductions

Moving expenses, advertising and training and education expenses are often valid deductions for business owners. The rules governing them are complicated, so be prepared to give your tax professional detailed information on any such items to determine if these might reduce your taxable income.

Small business owners or sole practitioners can take 100 percent of the costs of travel and entertainment and 50 percent of the costs of meals involving clients (or prospective clients). The tip and tax are part of the meal total. Make sure you have a record of the business discussed at the meal, who was present (names, titles and business affiliations), and the name and location of the restaurant in case the deduction is questioned. The IRS guidelines for travel and entertainment expenses are lengthy and off-putting, but it’s financially worthwhile for business owners to do what’s necessary to avoid missing deductions – and to avoid an audit.

If you volunteer or provide business services free-of-charge to charitable organizations, don’t forget to deduct your mileage and other out-of-pocket costs that might include child care. Likewise, your dues for not-for-profit organizations like chambers of commerce and professional associations usually are considered eligible deductions.

If you are a business traveler, the IRS doesn’t insist that you take the cheapest seat in order to deduct the cost of business transportation, but the form of transportation should be appropriate – in other words, a transatlantic cruise won’t qualify as a legitimate deduction while a business or first-class plane ticket to Europe might.

If a taxpayer has business financial losses that exceed his/her personal income for that year, such losses may be deducted from the individual’s overall income. In some instances, these losses may also be used to offset taxable income in future years.

Home and Family

If you’ve made home improvements that are energy-efficient, you could be eligible for green energy tax credits – up to $1,500 for qualifying improvements. Projects that qualify include the installation of doors or windows and the replacement of water heaters, furnaces or air-conditioning units.

If you support aging parents to the tune of at least 50 percent of their expenses (which might include medical bills), and these expenses represent more than 7.5 percent of your adjusted gross income, you could qualify for a deduction.

If you bought a new primary residence in 2010, make sure you know what mortgage origination fees or discount points you paid. These items are considered prepaid mortgage interest and as such should be eligible deductions.

Remember that general guidelines like the above are no substitute for advice from a tax professional. Be sure to set aside the time to meet with your tax consultant well in advance of the April deadline.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.